ieta cdm and ccs submission 2011-web

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21 February 2011

UNFCCC Secretariat

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Germany

Submission to the UNFCCC Secretariat by the International Emissions Trading

Association (IETA)

In response to COP Draft Decision -/CMP.16 Paragraph 3, the International Emissions

Trading Association (IETA) welcomes the opportunity to submit to the Secretariat our views on CO2 capture and storage (CCS) projects as Clean Development Mechanism

(CDM) project activities. As requested, this submission addresses issues to be considered

at the 35th Session of the Subsidiary Body for Scientific and Technological Advice(SBSTA35) as the modalities and procedures (M&P) are elaborated for the inclusion of CCS in geological formations as project activities under the CDM.

IETA applauds the call for a technical workshop on CCS at SBSTA35. We note that the

meeting should focus on the formation of modalities and procedures for the inclusion of CCS in geological formations as project activities under the CDM. The meeting should

therefore focus on M&P issues, not necessarily methodological issues. Many of theissues discussed at the workshop have been tackled within the UNFCCC system since

2006, so the subject matter should not be generic and there should be adequate timeallotted to address each topic. Government representatives and private sector constituents

should be present in order to create an atmosphere of meaningful exchange. IETAbelieves that the most challenging issue in this regard will be the establishment of a

suitable liability regime to encapsulate CO2 permanence in geological formations, whichwould assure the long-term fungibility of generated credits while also ensuring

environmental integrity.

SUMMARY OF IETA’S VIEWS

It is widely accepted that CCS is one of several important mitigation options for reducingemissions in the energy sector in the 2025-2050 timeframe. Its inclusion in the CDM

would reconcile the dual aims of emissions reduction and economic development, serving

as a catalyst for its early deployment in developing countries.



Below is a summary of our main arguments for the inclusion of CCS in the CDM:

1. Site selection criteria and monitoring plans should not be detailed in modalities and

procedures. High-level guidance is all that is necessary. An abundance of material is

readily available on defining and selecting an adequate storage site.

2. As we feel that risk and safety assessments as well as the socio-environmental impact

assessments and should be carried out on a case-by-case basis, IETA believes a

detailed methodology set out in the modalities and procedures is unnecessary.

3. Any storage site should meet basic geological criteria that allow for it to be

monitored sufficiently.

4. IETA considers modeling as a fundamental aspect of CCS projects. Withoutmodeling, projects would commence without pertinent risk and safety information for

Project Proponents and regulators.

5. We believe that the CDM project boundary for a CCS project should accommodate

components across the full CCS life cycle. In the unlikely event of CO2 migration

outside of the project boundary defined within the Project Design Document (PDD),

IETA believes that a request for deviation of the monitoring plan could be submitted,

allowing necessary revisions to be made to the monitoring plan that would account

for a newly dimensioned project boundary and associated monitoring requirements.

6. Project emissions should include the calculation of emissions resulting from fossil

fuel or electricity usage. Similar accounting approaches are already being used for CCS projects in the EU and Australia. IETA believes that it is therefore unnecessary

to create an entirely new accounting structure for CCS projects under the CDM.

7. While IETA recognizes that it may take some time before domestic regulators are

interested and capable to collaborate on a CCS project, we feel that it is important for

an enabling environment to be put in place for bilateral or multilateral cooperation to

commence across boundaries.

8. IETA believes that it is optimal for the ultimate liability for any long-term seepage

emission to lie with the host country. We believe that host countries should be able to

define the specific details of liability arrangements suitable to each specific project

and national circumstance, in the same way that sustainable development criteria arecurrently prescribed by host countries for CDM project activities, agreed upon prior

to host country approval.

9. Financial liability for monitoring, remediation and corrective measures pre liability

transfer can be met by a mutually acceptable financial mechanism. The financial

mechanism should depend on the credit standing of the Project Proponent and be

capped to manage liability exposure.



Introduction

In IETA’s view, CCS meets the objectives and criteria of the CDM and supports theability of developing countries to contribute towards the Convention’s central objective

of stabilizing atmospheric GHG concentrations to no more than a 2-degree Celsiuschange in average global temperatures relative to pre-industrial levels.

According to the International Energy Agency (IEA), CCS is the only technology

available to mitigate GHG emissions from large-scale fossil fuel usage, particularlypower generation but also in a number of industrial processes like cement, iron&steel and

refineries, where it is actually the only option to largely reduce CO2 emissions.. Themitigation potential through CCS could account for 19% of the total mitigation effort

needed by 2050, and more than 50% by 2100. IEA recently concluded that, in line withmaking reductions along a 450ppm scenario, the utilization of CCS will reduce GHG

mitigation costs up to 70 percent1.

Demand for coal (primarily for electricity generation) is expected to increase the most of all fossil fuels, out to 2030. Fossil fuelled power plants have a lifetime of 25 years to 50

years. To avoid a technology lock-in for new power plants, particularly in rapidlygrowing developing countries, commercial-scale CCS needs rapid global deployment if

its mitigation potential is to be met.

As the required domestic policy frameworks to incentivize the level and scale of mitigation necessary is often absent or insufficient in many developing countries, the

CDM has become one of the few mechanisms which can incentivize investment intechnologies such as CCS.

The CDM is an important contribution to incentivize cost-effective CCS opportunities in

developing countries. It will provide a critical income stream. This is the case not onlyfor the power sector but all large-scale uses of fossil fuels including industrial processes

such as: ammonia, cement production, gas processing - including liquefied natural gasproduction for export markets. In other words, CCS in the CDM can help to reconcile the

dual aims of emissions reductions and development.

Furthermore, inclusion of CCS in CDM will send an important signal to the market that

CCS is fully accepted as a much-needed technology in order to face the climate change

challenge in developing countries.

Inclusion of CCS in CDM will also pave the way for continuous, wider inclusion in a

post-2012 policy regime, reformed CDM or new market mechanism.

1IEA2009CCSTechnologyRoadmap



There are real and cost-effective opportunities available now in developing countries inneed of financing. The CDM provides an opportunity to establish a framework for

funding using the power of the carbon market to achieve effective cost reduction anddrive early CCS deployment. Such projects can help facilitate the critical pathway

towards the wider deployment of CCS needed in the long term while facilitating thetransfer of clean technology to developing countries. We strongly believe that

incentivizing low-cost early opportunities in developing countries will position them withthe required technology know how, infrastructure and sub-surface knowledge (e.g.

capture technologies, pipelines and storage potential mapping) needed for wider deployment in the future. This view is supported in the SRCCS which concludes that:

“early opportunities […] could provide valuable early experience with CCS deployment,and create parts of the infrastructure and knowledge base needed for the future large-

scale deployment of CCS systems” (2).

IETA believes that, depending on the development of a post-2012 international policy

framework, mechanisms in addition to the CDM will likely be required to promote CCSon a significant scale. However, in the short term the CDM can act as a much-needed

catalyst in developing countries to help build technical understanding of CCSapplications, reduce technology costs and develop the confidence needed for deployment.

Critically, the CDM represents the main means available for allowing CCS to becomecommercially available in those developing countries where CO2 emissions will rise

most rapidly in future years. We believe that the policy framework and financialmechanisms must and can be developed to encourage companies and governments to

gain the experience needed to build momentum towards widespread global industrial

scale operations.

Further, if the decision from the Conference of Parties was to disallow the inclusion of

CCS in the CDM, the negative message sent by such a decision could adversely impactthe widespread deployment of this important mitigation option. We therefore view CCS

inclusion in the CDM as a critical bridging opportunity towards a low-carbon future inwhich CCS is deployed on a large scale as part of a portfolio of mitigation options. The

CDM is one of these necessary mechanisms. We believe that process of identifying,approving and regulating CCS projects would fit efficiently into the CDM’s regulatory

framework (see Chart 1).

(2)IPCC Special Report on Carbon Dioxide Capture (SRCCS) and Storage, page 341



Chart 1

NM&PDD

• SiteCharacterisation

• Monitoringplan

etc.

Validation

Registration

Verification

Issuance

End of CreditingVerification

End of Post-closure

Verification

Reporting (Host CountryNational Communication)

Host Country approval

CDM BODY/ELEMENT SUPPORT

Host Country DNA

Operator/project proponent

DOE

Host Country DNA

CDM EB

DOE

CDM EB

(RIT)

DOE

DOE

CDM CCS Work

Group

COP/MOP (SBI)

CDM CCS Work

Group

New CDM CCS Methodology

Long-term security performance

assessment

Provisions for closure and post-closure monitoring

Reques

t deviation from monitoring plan/project boundaries



1. Site selection and characterization

Draft Decision Paragraph 3:

I. Subsection (a): The selection of the storage site for carbon dioxide capture and

storage in geological formations shall be based on stringent and robust criteria

in order to seek to ensure the long-term permanence of the storage of carbon

dioxide and the long-term integrity of the storage site;

II. Subsection (d): The criteria for site selection and monitoring plans shall bedecided upon by the Conference of the Parties serving as the meeting of the

Parties to the Kyoto Protocol and may draw upon relevant guidelines by

international bodies, such as the 2006 IPCC Guidelines for National

Greenhouse Gas Inventories;

IETA Response:

The importance of site selection and characterization in order to ensure the safeoperations of CCS and the long-term permanence of CO2 storage is widely recognizedand is addressed by a variety of guidance documents. The 2006 IPCC Guidelines (3) state

that site characterization should identify and characterize potential seepage pathways andquantify properties of the storage system. The SRCCS provides a framework for safe and

appropriate site selection. In addition, DNV and various industry partners have developedguidelines for the selection and qualification of sites for CO2 Geological Storage, known

as the CO2QUALSTORE Guidelines. These have harmonized the implementation of CO2 Geological Storage with regulations, international standards and EU directives. The

EU’s CCS Directive provides a sound example of how site selection requirements can bedefined at high level, yet allow for storage site variability to be managed appropriately by

Project Proponents. Current CCS regulations and guidelines are considered to be asource of best practices for the identification and assessment of adequate storage site.

Due to large variability in the characteristics of prospective sites for geological storage of

carbon dioxide it is important to apply procedures for site selection that can be tailored tothe unique characteristics of each site. Therefore, one should avoid introducing a

(3) 2006 IPCC Guidelines for National Greenhouse Gas Inventories, Volume 2, Chapter 5. Available at http://www.ipcc-

nggip.iges.or.jp/public/2006gl/vol2.html



prescriptive set of minimum physical parameters (depth, lithology, etc) when it comes tovalidation and verification within the CDM. We recommend a performance-based

approach with specification of activities that a project shall carry out as part of the siteselection process (process oriented requirements). Such an approach ensures that the

burden of proof resides with Project Proponents in the presence of large natural variationsin storage site geology and is comparable with the requirement in, for example, the North

Sea, for operators to submit detailed field development plans and demonstrate the safetyof their operations through performance related measures such as a risk-based safety

case. Even with such differences, sound characterization of reservoirs and good siteselection procedures are viable and needed to ensure long-term integrity of storage sites.

IETA therefore feels that site selection criteria and monitoring plans should not be

detailed in modalities and procedures. Any guidance on these matters should be kept athigh-level in modalities and procedures. Site selection and monitoring plans should be

approved based on approaches taken within a methodology.

2. Risk Assessment


I. Subsection (j): A thorough risk and safety assessment using a methodology

specified in the modalities and procedures, as well as a comprehensive socio-

environmental impacts assessment, shall be undertaken by independent

entity(ies) prior to the deployment of carbon dioxide capture and storage ingeological formations;

II. Subsection (k): The risk and safety assessment referred to above shall include,

inter alia, the assessment of risk and proposal of mitigation actions related to

emissions from injection points, emissions from above-ground and

underground installations and reservoirs, seepage, lateral flows, migrating

plumes, including carbon dioxide dissolved in aqueous medium migrating

outside the project boundary, massive and catastrophic release of stored

carbon dioxide, and impacts on human health and ecosystems, as well as an

assessment of the consequences of such a release for the climate;

III. Subsection (l): The results of the risk and safety assessment, as well as the socio-

environmental impacts assessment, referred to above shall be considered when

assessing the technical and environmental viability of carbon dioxide capture

and storage in geological formations;



IETA Response:

Risk assessments need to be integrated throughout all CCS project work streams and

should be wide in scope. Risk assessments should commence at a very high level duringthe first stages of screening for sites and should include safety, social, environmental and

economic factors. DNV’s CO2QUALSTORE guideline proposes a useful methodologyfor regulators to determine what is acceptable and un-acceptable risk levels of the

geological storage site. Risk assessments should be further refined as the site selectionprocess progresses, ultimately resulting in site-specific performance-assessment-based

frameworks that quantify adverse consequences and event likelihood while keeping track of key uncertainties. Besides shaping the ultimate storage site selection, the final risk

assessment will form the basis of the monitoring and measurement program as well asshape the corrective measures strategy.

Risks associated with CCS projects pertain to the potential for CO2 leakage from astorage site. Analysis shows that the likelihood for real leakage is very low. The IPCChas stated that CO2 leakage rates of less than 1% are likely over 1000 years for

appropriately selected and managed storage sites, and further that the environmentalimpact risks from CCS activities are comparable with those of natural gas storage. In the

event of a CO2 release, technologies are available to monitor CO2 levels and provideappropriate warnings (Section 5.6 for the SRCCS describes in detail a range of direct and

indirect monitoring techniques available for this purpose).

Environmental impact assessments (EIAs) are an assessment of the possible positive or negative impact that a proposed project may have on the environment, together consisting

of the natural, social and economic aspects. For CCS projects, EIAs should be a matter for host countries to determine and evaluate, thereby done on a case-by-case basis, due to

local social and environmental circumstances. Risk and safety assessment could beundertaken by the project proponent considering that for instance some strategic

information specific of oil and gas industry. As a minimum standard, project proponentscould adopt local law requirements and best practice EIA as the standard for CCS CDM

projects. CCS EIA guidance could be based on CCS requirements already adopted in EUDirectives or in countries such as Australia. The risk and safety assessment reports should

be validated by an independent entity.

We also believe that CCS can contribute towards sustainable development and that host

countries are best placed to judge whether a particular project meets its sustainabilitycriteria on a case-by-case basis. Countries with high CO2 emissions and geological

structures that allow for CO2 storage can, through the deployment of CCS, enhance their capability to manage their emissions. We support the view expressed that climate change

is linked with efforts in development and poverty reduction and that current patterns of energy supply and demand threaten to cause severe climate change, and that CCS is one

of the technologies that could facilitate the required change towards the low-carboneconomy.



As we feel that risk and safety assessments as well as the socio-environmental impact

assessments and should be carried out on a case-by-case basis, IETA believes a detailedmethodology set out in the modalities and procedures is unnecessary.

3. Monitoring:


Subsection (b): Stringent monitoring plans shall be in place and be applied during andbeyond the crediting period in order to reduce the risk to the environmental integrity of

carbon dioxide capture and storage in geological formations;

IETA Response:

There is broad support across industry and government that storage sites require a

monitoring programme in order to verify whether the site is performing safely and aspredicted. Any storage site should meet basic geological criteria that allow for it to be

monitored sufficiently. The monitoring plan should also identify potential leakagepathways and measure leakage. The results of continuous monitoring should be used to

recalibrate any models applied and to identify any potential seepage. Besides monitoringfor performance related assessments, monitoring is a key tool in all phases of a CCSproject including site selection and risk assessment where it serves to reduce risk.

The 2006 IPCC Guidelines (4) offer insights on adequate monitoring techniques. It

identifies the use of selected suitable methods for monitoring CO2 content as well as

possible fluxes. These include:

• Seismic surveys

• Microseismic monitoring

• Wellhead pressure monitoring during injection, formation pressure testing

• Gravity surveys

• Sonar

• Electrical methods

• Gas analysis

• Groundwater and surface gas analysis

(4) 2006 IPCC Guidelines for National Greenhouse Gas Inventories, Volume 2, Chapter 5. Available at http://www.ipcc-

nggip.iges.or.jp/public/2006gl/vol2.html



• Soil gas analysis

• Satellite or airborne hyperspectral analysis

•

Satellite interferometry

Regular monitoring is also fundamental to determining accurate levels of offset crediting.

Emissions data that flows from the monitoring process on a periodic basis will make surethat offset credits from CCS projects are based on real reductions that have been

measured and verified accordingly. Therefore, monitoring plans need to be efficientenough to accurately credit the project.

Monitoring is also used to cross check that stored CO2 is behaving as was foreseen in the

Project Proponent’s model. This should verify that risk and safety levels would be met inconjunction with details set out in the project methodology.

4. Modeling


Subsection (c): Further consideration is required as regards the suitability of the use of

modeling, taking into account the scientific uncertainties surrounding existing models, inmeeting the stringency requirements of such monitoring plans, in particular taking into

account the 2006 IPCC Guidelines for National Greenhouse Gas Inventories;

IETA Response:

Modeling forms the framework for site selection and CO2 monitoring, enabling critical

decisions to be made regarding offset crediting and site handover. It is an essential part of any risk based site characterization and selection process and is routinely used in oil and

gas field management and decision-making. While there can be uncertainties with suchmodels, these uncertainties can and are regularly dealt with through a variety of

techniques including sensitivity analysis.

Models used should be built on site characterization, which is informed by a range of suitable monitoring techniques. These models will in turn be recalibrated by monitoring

throughout the CCS project life-cycle to ensure the best possible predictability andunderstanding of the stored CO2. Modeling and monitoring should be tightly intertwined

throughout each project.

Due to the various methods available for monitoring CO2 content as well the potential for

unique site criteria, there is plainly no one model that would suit the monitoring needs of



every CCS project. It is however noteworthy that CERs should be credited based on

emissions reductions that are real, measured and verified, not necessarily the results of

modeling alone, but also requiring monitoring and regular review.

IETA considers modeling as a fundamental aspect of CCS projects. As modeling is usedin most energy and large-scale construction projects around the world today, we view

modeling as an imperative aspect of CCS development. Without modeling, projectswould commence without pertinent risk and safety information for Project Proponents

and regulators.

5. Project Boundaries


I. Subsection (e): The boundaries of carbon dioxide capture and storage in

geological formations shall include all above-ground and underground

installations and storage sites, as well as all potential sources of carbon

dioxide that can be released into the atmosphere, involved in the capture,

treatment, transportation, injection and storage of carbon dioxide, and any

potential migratory pathways of the carbon dioxide plume, including a

pathway resulting from dissolution of the carbon dioxide in underground

water;

II. Subsection (f): The boundaries referred to above shall be clearly identified;

III. Subsection (g): Any release of carbon dioxide from the boundaries referred to

above must be measured and accounted for in the monitoring plans and the

reservoir pressure shall be continuously measured and these data must be

independently verifiable;

IETA Response:

We believe that the CDM project boundary for a CCS project should accommodatecomponents across the full CCS life cycle. Each above- and below-ground component of

the CCS chain, including the emission source, mode of CO2 transport and storage, can beconnected within one boundary. It is important for the emission source to be linked with

the CO2 storage site operator via the project boundary so that emission accounting andthereby crediting are accurate.



An approach to below-ground project boundaries that is flexible is considered to be

consistent with views of Parties and organizations as expressed in the UNFCCCSecretariat’s Synthesis report of views on CCS as a CDM project activity, where it is

concluded that: “project boundaries would be defined by the emissions sources, asdescribed in the context of emissions sources and potential leakage pathways” and “that

project boundaries should be flexible enough to accommodate a range of storage typesand different geological conditions”(UNFCCC 2008a). These views suggest that the

approach to setting project boundaries that are flexible can be coherent with currentpolicy perspectives on these matters.

Projects Proponent should also design a monitoring plan to provide early signs of

significant irregularities within and outside of the storage site defined during sitecharacterization, including recognized migration & seepage pathways. If significant

irregularities in the storage site are detected, injection operations should cease and further

investigations (monitoring and modeling) should be carried out to provide details of theirregularity and the reasons for it occurring. If any seepage is detected which took placeduring the crediting period, CER issuance should be paused until corrective measures to

stop further seepage and reconcile CERs already attained have been carried out.

Itisalsoimportanttonotethatdynamicconditionsshouldonlyariseintheeventof

significantirregularities,whichamethodologyshouldsetsouttominimisethrough

theprincipleofavoidance,coupledtoappropriatestoragesiteselectionandmanagement.However,projectboundarieswithflexibilitywouldallowforCO2to

migrateintoandoutofthepredefinedprojectboundaryovertime.

IntheunlikelyeventofCO2migrationoutsideoftheprojectboundarydefinedwithintheProjectDesignDocument(PDD),IETAbelievesthatarequestfor

deviationofthemonitoringplancouldbesubmitted,allowingnecessaryrevisionsto

bemadetothemonitoringplanthatwouldaccountforanewlydimensionedproject

boundaryandassociatedmonitoringrequirements.Thisapproachwould

sufficientlycreateaprojectboundarywithsomeflexibility,whichmaybenecessaryinsomeCCSprojects.

Any leakage raises two situations. The first is leakage of CO2 as a safety issue. This is a

matter that should be dealt with by the appropriate national regulations. Material leakageis highly unlikely: the IEA GHG Programme has recently produced a document

'Geologic Storage of Carbon Dioxide: Staying Safely Underground’ (5) detailing thelevels of risk from seepage. This document concludes that "Geological storage projects

have already successfully stored millions of tonnes of CO2, some for many years, with nodetectable leakage via geological formations". The second issue is that under the CDM

leaks negatively impact net CO2reductions and therefore must be reflected in the number

(5) IEA, Geological Storage of Carbon Dioxide – Staying Safely Underground (2008). Available at

http://www.cslforum.org/documents/geostoragesafe.pdf



of CERs generated and should be addressed via the transactional arrangements by whichthe storage is funded, and it is perfectly feasible for this to be designed into the

arrangements whereby CCS would be included under the CDM.

Accounting options for any long-term seepage should be considered in conjunction withissues presented by long-term responsibility for monitoring and remediation. IETA

believes that CERs resulting from CCS project activities should be considered permanentand fungible. We uphold the view that the guiding principle for accounting rules for CCS

project activities under the CDM should be consistency with current approaches under the Kyoto Protocol which ensure that the actual effect of a project on the atmosphere is

reflected in the number of Kyoto units issued and accounted for over time. We thereforedo not support the use of temporary or long-term CERs which have been designed to

address the issue of non-permanence by afforestation and reforestation projects. The timeperiod over which emission reductions are achieved through use of CCS is thousands of

years, whereas for bio-sequestration it is decades. In the context of climate change, this

difference in time scale of permanence suggests that it is inappropriate to compare CCSwith afforestation and reforestation. We believe that the lower market value associatedwith temporary or long-term CERs would also serve to limit the potential for CCS project

investment and therefore the potential for building capacity and experience needed aheadof wider, more large-scale, deployment.

A mechanism needs to be put in place to manage exposure on emission seepage, which

would keep project risk levels down. Such a mechanism might simply be an agreementbetween the Project Proponent and the relevant national authority, prior to the start of

injection, of a set allowance price or quantity to quantify such risk of seepage. Contractswould be agreed upon on a case-by-case basis for negotiating the necessary provision to

cover future potential and very unlikely leakage exposure.

6. Accounting for project emissions leakage


Subsection (i): Any project emissions associated with the deployment of carbon dioxidecapture and storage in geological formations shall be accounted for as project or leakage

emissions and shall be included in the monitoring plans, including an ex-ante estimationof project emissions;

IETA Response:

Project emissions should include the calculation of emissions resulting from fossil fuel or electricity usage. Such emissions can be calculated with the help of tools that have

already been developed by the CDM Executive Board, such as the “Tool to calculateproject or leakage CO2 emissions from fossil fuel combustion” and the “Tool to calculate



baseline, project and/or leakage emissions from electricity consumption”. Any fugitiveproject emissions would thereby be the net balance between any emissions from fossil

fuel combustion and stored emission levels via CCS that have been monitored andverified. Similar accounting approaches are already being used for CCS projects in the

EU and Australia. IETA believes that it is therefore unnecessary to create an entirely newaccounting structure for CCS projects under the CDM.

7. Transboundary projects


Subsection (h): The appropriateness of the development of transboundary carbon dioxidecapture and storage project activities in geological formations and their implications shall

be addressed;

IETA Response:

IETA believes that CCS projects crossing national boundaries can be adequately

accommodated within the project boundary definition of the CDM process. The 2006IPCC Guidelines provide robust guidance on accounting for emissions involving more

than one country and these can be applied to CDM project activities. The LondonProtocol has also recently been amended to allow for legal jurisdiction over sub-surface

geological formations.

While IETA recognizes that it may take some time before domestic regulators areinterested and capable to collaborate on a CCS project, we feel that it is important for anenabling environment to be put in place for bilateral or multilateral cooperation to

commence across boundaries. Bilateral and multilateral cooperation may benefit someCDM Host countries significantly, allowing for synergies to be exploited and transferring

knowledge across borders. Cross-border arrangements might especially work well for some countries that aim to collaborate on storage site regulation in the near future.



8. Liability


I. Subsection (m): Short-, medium- and long-term liability for potential physical

leakage or seepage of stored carbon dioxide, potential induced seismicity or

geological instability or any other potential damage to the environment, property or public health attributable to the clean development mechanism project activity

during and beyond the crediting period, including the clear identification of liable

entities, shall;

i. Be defined prior to the approval of carbon dioxide capture and storage in

geological formations as clean development mechanism project activities;

ii. Be applied during and beyond the crediting period;

iii. Be consistent with the Kyoto Protocol;

II. Subsection (n): When determining the liability provisions referred to above, the

following issues shall be considered:i. A means of redress for Parties, communities, private-sector entities and

individuals affected by the release of stored carbon dioxide from carbon

dioxide capture and storage project activities under the clean development

mechanism;

ii. Provisions to allocate liability among entities that share the same reservoir,

including if disagreements arise;

iii. Possible transfer of liability at the end of the crediting period or at any other

time;

iv. State liability, recognizing the need to afford redress taking into account the

longevity of liabilities surrounding potential physical leakage or seepage of

stored carbon dioxide, potential induced seismicity or geological instability or

any other potential damage to the environment, property or public health

attributable to the clean development mechanism project activity during and

beyond the crediting period;



IETA Response:

Liability for maintaining storage integrity, remediation, implementation of correctivemeasures and any environmental, human or property damages should change throughout

the life of a CCS project. In the first period, throughout project development, injection,closure and post injection phases, liability is best managed by the project operator.

Because private entities may not remain solvent in the long term, full liability shouldultimately needs to be transferred to the Host Country. This transfer should be based on

pre-agreed, realistic and measurable storage site performance criteria and closed in ampletime.

Furthermore, reasonable contribution for monitoring costs post-liability transfer could be

provided by the project proponent to the host government if and as agreed prior todelivery of the injection permit.

For the sake of actually achieving commercial investment decisions any suchcontribution should be based on probabilistic risk assessments as per industry bestpractice at the time of project commencement and will ultimately have to be capped in

terms of amounts and duration.

IETA believes that it is optimal for the ultimate liability for any long-term seepageemission to lie with the host country. The host country is most able to ensure the

operating conditions of any seepage emissions while the storage reservoir lies within itsjurisdiction and control post closure. Project Proponents are unaccustomed with keeping

liabilities on investment balance sheets for multigenerational projects. Liability needs toeventually be handed over in a period defined within the permitting process and in

accordance with domestic regulatory conditions. Furthermore, considering the long-termnature of CCS, post-project closure monitoring and remediation liability could only be

practically assumed by the host country. See Chart 2 below for a geological storagetimeline on the main phases for CCS projects.

Chart 2

Reference: CO2 Capture Project



IETA Response:

Financial liability for monitoring, remediation and corrective measures pre liability

transfer can be met by a mutually acceptable financial mechanism. The financialmechanism should depend on the credit standing of the Project Proponent and be capped

to manage liability exposure.

Financial arrangements to compensate for potential damages during the project activity or as a result of leakage prior to liability transfer are best defined under existing national

legislation regarding industrial activity, which can be amended to include provisions for CCS where necessary. Such arrangements could form part of the project’s domestic

approval procedure with respective DNAs, which may have to lodge performance and

rehabilitation bonds with local regulators.

Financial liability mechanisms can also be distributed throughout the project value chain.

Lessons might be taken from from the “buffer” approach to REDD crediting under theVoluntary Carbon Standard (VCS) or the current CDM EB discussion on a DOE liability

regime for projects that may have been over-credited.

Conclusion

IETA’s view is that reconciling increasing world energy demand with the transition to alow-carbon future will require an unprecedented effort by the global community to

develop the appropriate policy and technology responses. The effects of climate changeare being felt now and a delay in achieving significant cuts in emissions will lead to

increasingly severe consequences. Furthermore, the costs of deferring action willsignificantly outweigh the costs of taking action sooner as suggested by the economic

analysis of the Stern Review (6). IETA believes that CCS represents one of severalimportant mitigation options needed to achieve the significant emissions cuts needed this

century.

Although CCS deployment potential may vary across countries and regions, its use will

allow for more stringent and cost-effective global emissions reductions to be available. If the deep emissions reduction required are to be achieved then all mitigation options must

be enabled to be used to their full potential regardless of whether all options can bedeployed in all countries. Whereas for some countries, protecting their bio-sequestration

capability may be the largest contribution they can make in combating climate change,for other countries with less significant bio-production, it may be their potential to

permanently store large volumes of CO2 which offers the most promising option. Our

(6) N.Stern “Stern Review: The Economics of Climate Change” (2007) Cambridge University Press. Available at http://www.hm-

treasury.gov.uk/independent_reviews/stern_review_economics_climate_change/sternreview_index.cfm



view is that all countries should take the responsibility to allow an enabling framework todevelop which enhances the fullest abatement potential to be realised within the different

individual countries, and not to discourage important mitigation options which may notbe readily available to themselves. International regulations and mechanisms should

encourage this to happen.

The technologies used for CCS projects are well known and used within thousands of projects around the world today. The regulatory framework needed to deploy CCS in

developing countries is similar to the structures need for other such projects, such asthose in the energy commodity and heavy construction industries.

IETA believes that the future financing needed for large-scale future deployment of CCS

will not be achievable through deploying CCS projects in developed countries alone.And it is crucial to finance and deploy CCS in developing countries as soon as possible in

accordance with the IEA’s 450ppm reduction scenario. We believe that CCS will be

needed along with other appropriate mitigation actions to help developing countriesaccomplish goals sent out in the Cancun agreements. The incentives provided by theCDM to finance early opportunities can provide the critical first steps along the pathway

to meeting this challenge.

We hope that the above comments will provide valuable input to your further work.

Yours sincerely,

Henry Derwent

President

ieta cdm and ccs submission 2011-web

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